Hard Choices

Meredith Whitney on Her Bear Stearns Call

June 16, 2011

When I issued my report on Citigroup, I didn't realize the impact it would have. It was a straightforward look at their leverage and the fact that they didn't have the earnings to maintain their dividend. The power was in the simplicity of the description of Citi's fragile financial position. I didn't overanalyze it—I didn't think it was a huge call—but it set off a firestorm. I issued it on a Wednesday night and [Citigroup CEO] Chuck Prince was out by Monday.

Suddenly, I was under a bright spotlight. From October up to the collapse of Bear Stearns in March, my calls were having an unprecedented influence. If I made a call, it moved the market. I was very aware of the influence I had, and it was daunting. I was very careful with it.

The weekend before Bear Stearns collapsed, UBS Chairman Marcel Ospel was in New York trying to sell PaineWebber. They were desperate to raise cash. I started to hear that people were also demanding higher collateral from Bear. They didn't have the revenues to cover their expenses, and they were so highly leveraged. All of the factors pointed to the abyss. On Wednesday, I was in London, telling several clients that I believed, with certainty, that Bear could go under. I remember calling someone I respect and asking, "Is it possible that Bear goes the way of Drexel?"

The market is a faith-based system, and this could have turned into a run on the bank. I didn't want to be responsible for accelerating a wave of panic. I was just too scared. I remember not being able to sleep on Wednesday night. You have to be so careful about what you say if you've got the microphone. I wrote a note—but I sat on it.

By Friday, it was game over. I sent out the report. Bear sold on Sunday for $2. I don't regret holding back; I was silent on Lehman for the same reasons. Still, I'm accused of being a one-hit wonder. I've had a lot of right calls, but the timing with Citi was unusual. I never assume the consensus is right. I do my research: I know when I'm right.